Part 3: A Way Forward
What should Leftists do between now and the meetings of the Conference of Parties to the Kyoto Protocol in Mexico next year to get our own train as well as international negotiations back on track? We must begin by affirming how Kyoto put us on the right track, and insist that formal negotiations get back on the track that began in Rio and ran through Kyoto.
(1) Climate change will not be averted unless countries mutually agree to binding reductions in an international treaty. Any illusion that voluntary actions on the part of countries, or even small groups of countries in consort, will secure reductions sufficient to avert climate change is pure fantasy. Theory predicts a voluntary approach will not work and the historical record between Rio and Kyoto confirms it.
(2) Countries bear different responsibilities for causing climate change, countries have different capabilities to bear the costs of averting climate change, and efforts to mitigate climate change should reflect these "differential responsibilities and capabilities." Countries where the majority of citizens have yet to enjoy the benefits of economic development should not be expected to bear the same burdens as more developed countries to prevent climate change. If anything good came out of Copenhagen it is that the less developed countries made very clear they will not agree to any treaty that in effect requires them to give up hope of developing.
But Kyoto was flawed in important ways, and we must demand key changes in a post Kyoto treaty. In short, using Copenhagen as a wakeup call to get Kyoto fixed and back on track is our best chance to combat climate change effectively and fairly in the foreseeable future.
(1) Set a cap on global emissions at whatever level the scientific community tells us is necessary to stabilize carbon concentrations at 350 ppm.
Kyoto set a cap on aggregate emissions in 2012 from Annex-1 signatories at 5.5% below their aggregate emissions in 1990. New scientific evidence indicates that global caps on emissions for 2020 and 2050 must be much lower if we are to stabilize atmospheric CO2 concentrations at a level that reduces the risk of cataclysmic climate change to an acceptable level. But why argue for a global cap based on a 350 parts per million target rather than a global carbon tax?
In theory a carbon tax is the best approach because it does not create a new tradable commodity and market that can careen out of control. However, climate activists were not able to win consideration for a significant international carbon tax during the 1990s, and Annex-1 countries agreed to a cap on aggregate Annex-1 emissions for 2012 that, while insufficient, was a significant step. More importantly, at this juncture it is even more apparent that we can win much larger global reductions through caps than we can win through an international carbon tax. Recently an 80% reduction in global emissions – or more – by 2050 has come under serious consideration. Nobody knows how high a global carbon tax would have to be to achieve reductions this deep, but everybody knows that a tax of that magnitude is completely out of the question. In other words, it has turned out we could win much better deals in the form of caps than through carbon taxes.
At one level this is completely irrational because an 80% reduction in global emissions will put a price on carbon just as high as a carbon tax high enough to yield an 80% reduction. On the other hand it is not so irrational if one stops to consider why many people, and therefore even some of their elected leaders, have come to the conclusion that they support a reduction in emissions on the order of 80% or more. The scientific community, in a truly remarkable display of virtual unanimity, is telling us that unless we reduce emissions by 80% or more by 2050 we run a significant risk of cataclysmic climate change. The scientific community is not qualified to recommend how high we would have to set a carbon tax to reduce the risk of cataclysmic climate change, and makes no attempt to do so. But sensible people are now willing to accept the advice that a unified scientific community can offer about the amount and pace of necessary global reductions to reduce the risk of cataclysmic climate change to an acceptable level. The fact is climate activists were getting nowhere as long as economists and politicians dominated the climate debate, and climate activists only started to move forward when the scientific community seized the microphone. In order to embrace the incredible coup the scientific community has pulled off we need to accept a program based on caps rather than taxes.
(2) Cap emissions in all countries but give less developed countries much higher caps, including caps in excess of their present emissions for some years into the future, and place more stringent caps on more developed countries by whatever amount is necessary to achieve the global emission cap determined in #1.
Much of the literature criticizing carbon trading consists of exposes of cases where certification and sales have taken place when credits were awarded for reductions that were not legitimate because the emission reductions were not "additional" to what would have occurred in any case, or the reductions credited indirectly permitted emissions to increase elsewhere in the country, a problem referred to as "leakage."
But what many critics fail to understand is that if the seller of a bogus "certified emission reduction" (CER) is located within a country whose national emissions are capped this does not erode overall emission reductions as long as the seller’s country is forced to comply with its national obligations under Kyoto. Suppose the CERs for a 100 ton reduction sold by a Canadian power company to a Japanese power company is completely bogus — a pure hoax. Under Kyoto, Japan can now emit 100 tons more than it would have been permitted to otherwise. The Canadian power company, by assumption, will not emit any less than it would have in any case. However, the country of Canada will now be required to emit 100 tons less than it would have been required to otherwise because a source within Canada sold CERs for 100 tons to a source outside Canada, and therefore those responsible for verifying that Canada has met its Kyoto treaty obligations will add 100 tons to the reductions Canada is required to make. So global reductions will be exactly equal to the global reductions agreed to by Canada and Japan even if the CER is totally bogus, as long as the Canadian government is forced to meet its obligations under Kyoto.
In other words, when sources in countries whose national emissions are capped sell bogus CERs to sources in other countries the effort to avert climate change is not "cheated." But if not the environment, then who has our devious Canadian power company cheated by accepting a handsome payment for doing nothing? When an apple seller cheats by selling a rotten apple it is the apple buyer who is cheated. However, in the case of CERs the Japanese power company got exactly what it wanted – credit for reducing 100 tons which allows it to emit 100 tons more than it could have otherwise. But if neither the environment nor the buyer of the bogus CERs were cheated by the Canadian power company scam, then who was cheated? Could this be one of those so-called crimes without victims? Unfortunately not. The Canadian power company has cheated its fellow Canadians. By selling bogus CERs it has forced Canada to reduce its emissions by 100 more tons than it would have had to otherwise. Somebody else in Canada is going to have to reduce their emissions by 100 more tons than they should have had to. It is other Canadians who are the victims when a source in Canada sells bogus CERs to someone in another country.
Where critics of carbon trading have a valid point is when they argue that if a seller of a bogus CER is located in a country whose national emissions are not capped this diminishes global reductions and the goal of averting climate change is cheated. If the credit is legitimate – i.e. "additional" and without "leakage" — then the global reduction target is not undermined and there is no problem. But if the credit sold from an uncapped country is not legitimate we have a problem. Moreover, there is every incentive for the seller of the credit to try to cheat, there is no incentive for the buyer of the credit to insist on its legitimacy, there is no incentive for the country where the buyer is located to care if the credit purchased is legitimate, and in the case of a country whose national emissions are not capped, there is no incentive for the government where the seller is located to make sure the credit is legitimate either.
Of course this is why Kyoto gave the power to certify emissions reduction credits to the Executive Board of the Clean Development Mechanism (CDM) and did not rely on host governments of non-Annex-1 countries to monitor the legitimacy of requests for credits by sources in their national territories. But it is not easy to establish a hypothetical base line scenario and determine how much more a project reduced emissions than they would have fallen anyway, much less be sure the project did not indirectly allow for an increase in emissions somewhere else in the country. By capping emissions in all countries we guarantee that even if bogus projects are approved, or even if projects are awarded more CERs than they merit, the global emission target is not undermined in any case. In effect, by capping emissions in all countries we protect the integrity of the overall treaty objective from certification mistakes that are predictable.
Critics will no doubt object that this is not fair. They will say it is not fair to cap emissions of poor countries who are least responsible for causing climate change and least able to bear the costs of curtailing climate change. Critics will argue this effectively prevents poor countries from developing and catching up with the developed economies. These arguments against capping emissions in every country are absolutely correct if the caps are equal for all countries. However, none of these arguments against capping emissions everywhere holds true if countries have different caps set according to their different "responsibilities and capabilities."
Of course equally restrictive caps for all is unfair. But sensible people, and even sensible governments, understand this. The European Union has assigned lower caps to more developed member countries like Germany and France and higher caps to less developed members like Portugal and Ireland. Once it is understood that capping everyone does not mean the same cap for everyone it is apparent that equity can be achieved at the same time that erosion of global emission reductions resulting from failure to cap emissions in all countries is prevented. Moreover, there is no reason we cannot allow poor countries to increase emissions for some time, as long as the increase is capped.
One excellent proposal for determining equitable caps for developed and developing countries alike is the Greenhouse Development Rights Framework proposed by Paul Baer, Tom Athanasiou, and Sivan Kartha. (The Right to Development in a Climate Constrained World: The Greenhouse Development Rights Framework. Berlin: Heinrich Boll Foundation, Christian Aid, EcoEquity, and the Stockholm Environmental Institute, 2007.) They address the complaint that while more people in lesser developed countries have failed to benefit from economic development than in more developed countries, nonetheless there are some poor people living in more developed countries who also should have a right to benefit from economic development and not have to bear the costs of preventing climate change. Moreover, there are some wealthy people in lesser developed countries who have enjoyed development and can afford to bear part of the cost of preventing climate change. These authors propose a practical way to measure the proportion of each country’s residents who have already enjoyed the benefits of economic development, and therefore should be expected to bear some of the costs of preventing climate change, which can then be used to calculate a set of equitable caps for all countries. The principle of differential responsibilities and capabilities was implemented in Kyoto using a discrete variable to divide countries into two groups and requiring mandatory reductions from more developed countries while leaving lesser developed country emissions uncapped. This may well have been the best way to affirm an unwavering commitment to equity at the beginning. But the Greenhouse Development Rights Framework formula arguably implements the same principle better via a continuous variable that has the considerable advantage of permitting us to cap emissions in all countries, guarantee that any bogus trading cannot undermine planned global reductions, and thereby remove any obstacles to maximizing the flow of income from North to South that full trading yields.
Of course the more we allow developing countries to increase emissions before reaching their caps, more stringent caps must be on industrialized countries in order to meet a given level of global reductions. Nobody is suggesting that reaching agreement on differential caps will be easy. But agreeing on differential caps for Annex-1 countries was not easy in Kyoto, yet agreement was reached. In any case, the answer is simple no matter how difficult negotiations may prove: Capping all countries is the only way to guarantee that we will meet our global emissions reduction goal. Capping all countries is the only way to reap the full efficiency gain possible from carbon trading and maximize the flow of payments from North to South without risking undermining the overall reduction target. And by varying the caps for countries with different responsibilities and capabilities sufficiently – including allowing emissions increases for some time in poorer countries – equity can be secured.
(3) Cap national net emissions rather than national emissions.
If the international treaty held governments responsible for national net emissions, governments would have an incentive to discourage activities that emit carbon and also have an incentive to encourage activities that increase carbon sequestration. The international treaty needn’t dictate to governments how they go about doing this. Since conservation generally yields fewer net emissions than deforestation followed by replanting, national governments would be foolish not to make sure that conservation was also financially more attractive.
(4) Give national governments the power to certify or refuse to certify emission reduction credits for sale by parties operating in their territories.
As long as emissions from non-Annex-1 countries are not capped there is no choice but to give an international agency the power to review applications for CERs from applicants in those countries because there is no incentive for non-Annex-1 country governments to blow the whistle on bogus proposals for CERs by home country applicants. For this reason Kyoto had no choice but to create an international professional bureaucracy to play the role of sheriff.
However, as hard working, honest, and professionally competent as the clean development mechanism (CDM) Executive Board and the Designated Operational Entities (DOEs) they work with may be, the CDM is still an international bureaucracy subject to the pressures all international bureaucracies respond to. In the end they have nothing at stake but their salaries and reputations. Meanwhile they are subject to political pressures from different sides. On the one hand, international environmental organizations concerned with preserving the integrity of global reductions apply political pressure on the CDM to tighten standards and deny certification to questionable projects. On the other hand, those who wish to sell or buy CERs, any governments who lobby for business interests operating in their territory, and those who favor the income flows from more developed countries to lesser developed countries which CER sales generate apply political pressure on the CDM to approve more projects and increase the volume of CER trading. The result has been suboptimal in two ways. While most projects approved have been legitimate, a troubling number of bogus projects have also been approved which has undermined planned global emissions reductions. Meanwhile those worried about the negative effects of bogus projects have succeeded in limiting application of the CDM mechanism by requiring Annex-1 countries to meet their reduction quotas "predominantly" from internal reductions, and by excluding certain categories of projects deemed too difficult to evaluate and monitor. This has led to a failure to minimize the global cost of achieving reductions and also limited the transfer of income from MCDs to less developed countries.
However, once net emissions are capped in all countries, not only do mistaken awards of CERs no longer undermine the global reduction target, there is also a policeman available with a great deal to lose from mistaken awards, including awards for projects that increase sequestration. It is in the interest of country governments to keep private parties operating within their territories from selling more CERs in the international carbon market than the amount by which a project actually reduces emissions or increases sequestration above and beyond what would have occurred had the project not been undertaken because, as explained above, if country governments whose net emissions are capped fail to prevent this, it will be those governments or their citizens who will suffer the adverse consequences of having to cover the shortfall by reducing net emissions more than they would have had to otherwise.
(5) Concentrate attention on the relatively easy task of measuring national net emissions and the crucial task of establishing effective penalties for non-compliance.
Measuring national annual emissions is relatively easy based on readily available information about production levels and technologies in use. And yes, this means the fuss in Copenhagen over Chinese refusal to allow outsiders to engage in on site inspections was actually quite silly. Verifying national carbon emissions is not at all like verifying compliance with a non-proliferation nuclear weapons treaty where onsite inspections of nuclear energy programs play a critical role. Similarly, global information systems (GIS), international temperature and rainfall readings, and international biological maps now make it relatively easy to measure how much carbon is sequestered in the national territory of a country during a year. On the other hand, measuring how much an individual project decreased net emissions over its lifetime compared to what would have happened had the project not been undertaken is quite difficult because it requires establishing a hypothetical baseline and evaluating net emissions over multiple time periods. Much discussion about measuring and cheating confuses this crucial difference between what is easy to measure and what is difficult to measure.
The international treaty needs only to measure annual, national, net emissions because that is what signatories commit to and must be held responsible for. That task is relatively easy and governments will have a difficult time claiming treaty monitors have made significant errors. What the international treaty organization needs to worry about instead of measurement problems, which for the treaty organization are minimal, is how to secure an agreement among signatories on an effective set of penalties for non-compliance, without which the entire exercise is pointless. Continuing to postpone discussion of how to enforce compliance guarantees that negotiations will not be taken seriously. The fact that most Annex-1 signatories will fail to meet their commitments under Kyoto in 2012 miserably proves that the issue of enforcement can no longer go ignored.
If reduction or sequestration credits are to be traded between private parties operating in different countries as I propose, the amount by which net emissions have been decreased through the efforts of the seller must be measured. Yes, they must be measured, and certified, and the judgments about additionality, leakage, and permanence this requires can be quite difficult. But once net emissions are capped in all countries any errors in these measurements and certifications cannot prevent the treaty from achieving its global, net emission target — provided national annual net emissions are measured accurately and treaty signatories are induced to live up to their commitments. In other words, if the treaty is fixed as I have outlined above, the fact that it is difficult to determine how many credits a seller should be awarded does not matter in the way critics believe. Mistakes in assigning reduction credits for individual projects merely benefit the seller at the expense of the seller’s fellow citizens if the seller is awarded more credits that deserved, or benefit compatriots at the expense of the seller if fewer credits are awarded than deserved.
While lesser developed country governments in particular may well appreciate help and advice in awarding CERs to applicants operating within their territory from a staff of experienced professionals whose salaries are paid by an international treaty organization, national governments should have the right to make decisions that affect only their own citizens, and once national, annual, net emissions are capped, governments will have every incentive to make accurate awards.
(6) Once these five changes in Kyoto are made we can then hold our noses and support full carbon trading for three reasons.
First, no matter how badly the carbon market functions, no matter how much an unregulated financial sector inserts carbon permits into its murky, toxic, financial soup, no matter how impossible it becomes to verify that what has been chopped up and divided, bought and sold, repurchased and resold, and packaged in a myriad different forms and combinations with dozens of other questionable assets are in fact real emission reductions rather than fakes; necessary global emission reductions guaranteed by #1, and a fair distribution of the costs of achieving those reductions guaranteed by #2 will not be undermined or compromised in any case.
Second, full trading of emissions credits will produce a flow of income from North to South that far exceeds current aid flows or any reparation payments that are likely to be agreed to. Many Left critics fail to understand that carbon trading of legitimate CERs not only reduces the cost of compliance for more developed country sources and governments – which is good not bad because it makes it easier to lower their caps even further – it also provides a substantial benefit to lesser developed countries. Lesser developed country sellers of CERs and more developed country buyers of CERs divide the efficiency gain from reducing emissions in the lesser developed country rather than in the more developed country between them. The higher the price paid for CERs the more of the efficiency gain goes to lesser developed countries, the lower the price of CERs the more of the efficiency gain goes to more developed countries. But in either case the CDM generates a flow of income from North to South that would stop if the CDM were shut down, as many on the Left have called for.
And third, emission trading will lower the global cost of achieving emission reductions considerably and thereby make it easier to win political approval from electorates in more developed countries for the deep level of reductions necessary.
In short, this is why the Left should support an international treaty with mandatory caps rather than waste time we don’t have trying to change course once again calling for an international carbon tax that would not be nearly high enough. This is why it is counterproductive to forego the benefits that trading emission credits brings in a world driven by market forces. And these are the changes in the Kyoto Protocol that would make it effective, fair, and well worth fighting for as we continue to work to convince more and more people to throw off the capitalist albatross that regrettably still hangs around our necks.